Water supply for an irrigation system can be obtained from a stream in some nearby mountains. Two alternatives are being considered, both of which have essentially infinite lives, provided proper maintenance is performed. The first is a concrete eservioir with a steel pipe system and the second is an earthen dam with a wooden aqueduct. Below are the costs associate with each. Compare the present worths of the two alternatives, using an interest rate of 8%. Which alternative should be cho Perform all calculations using 5 significant figures and round any monetary answers to the nearest dollar}? First Cost [dollars] Annual Maintenance Costs [dollars] Replacing the wood portion of the aqueduct each 15 years Concrete Reservoir 550,000 2,250 N/A Earthen Dam 230,000 15,000 120,000
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
![Water supply for an irrigation system can be obtained from a stream in some nearby mountains. Two alternatives are being
considered, both of which have essentially infinite lives, provided proper maintenance is performed. The first is a concrete
reservioir with a steel pipe system and the second is an earthen dam with a wooden aqueduct. Below are the costs associated
with each. Compare the present worths of the two alternatives, using an interest rate of 8%. Which alternative should be chosen
{Perform all calculations using 5 significant figures and round any monetary answers to the nearest dollar}?
Concrete
Reservoir
550,000
2,250
N/A
First Cost [dollars]
Annual Maintenance Costs [dollars]
Replacing the wood portion of the
aqueduct each 15 years
The cost Concrete Reservoir is (in PW dollars):
Earthen
Dam
230,000
15,000
120,000
Number
The cost of the Earthen Dam plus Aqueduct is (in PW dollars): Number
Which alternative should be chosen (enter either 'Reservoir' or 'Dam'?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F96ed4f2e-a0e5-40d5-9d9a-4e9c33f2cc14%2F5d233ffe-ad28-4475-9072-312dfc452162%2Fr12w87r_processed.png&w=3840&q=75)
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